TAX NEWS - 2010

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SEC Charges Palm Beach County Investment Adviser With Running a Ponzi Scheme and Stealing Client Funds

Washington, D.C. — The Securities and Exchange Commission today charged an investment adviser in Palm Beach Gardens, Fla., and two of its managing members with fraud for running a Ponzi scheme and stealing client funds.

The SEC alleges that Trade-LLC, and its managing members, Philip W. Milton and William Center, convinced three private investment clubs, with more than 800 members nationwide, to entrust Trade-LLC with money so that it could trade securities on the clubs' behalf using its purported proprietary software trading program.

According to the SEC's complaint, filed in the U.S. District Court for the Southern District of Florida, between 2007 and 2009, the three private investment clubs invested nearly $28 million of their members' funds with Trade-LLC based on promises that the firm could generate significant returns for them and their members. On a monthly basis, the clubs received reports from Trade-LLC purportedly showing that they were making returns of up to 8% a month, or approximately 100% on an annualized basis. In truth, Trade-LCC was consistently losing money from the trading it conducted on behalf of the clubs, which was directed by Milton, and in total sustained trading losses of more than $2 million.

"With claims of a sophisticated trading program and extraordinary returns, Milton and Center persuaded the clubs and their members to increasingly invest millions with Trade-LLC," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "They then blatantly lied to the clubs about the returns that were being achieved and hid the clubs' losses by running a Ponzi scheme."

Trade-LLC raised almost $28 million from the clubs and throughout the course of the scheme, claimed that it was profitably trading securities for them. In fact, Trade-LLC was incurring significant trading losses and Milton and Center were allegedly using the funds Trade-LLC received from the clubs to pay fictitious trading profits to them. Milton and Center also misappropriated the clubs' monies to pay their salaries and other personal and business expenses.

The complaint further alleges that Trade-LLC, Milton, and Center were operating a Ponzi scheme by using the funds Trade-LLC received from the clubs to pay back to them more than $1 million in fictitious profits. Moreover, the SEC's complaint alleges that Milton and Center misappropriated millions of dollars belonging to the clubs. Specifically, Milton and Center used the clubs' funds to pay themselves salaries of more than $2 million and $1 million, respectively, and to cover more than $1.3 million in business and other unrelated expenses. Milton and Center also transferred, without any legitimate basis, over $4.8 million of the clubs' funds to three Florida companies they controlled.

The Securities and Exchange Commission's complaint charges Trade-LLC, Milton and Center with violating the antifraud provisions of the federal securities laws. Center is also charged with failing to register with the SEC as a broker-dealer. The three companies controlled by Milton and Center that received proceeds from the fraudulent scheme, BD LLC, TWTT-LLC and CMJ Capital LLC, are named as relief defendants.

Trade-LLC, the relief defendants and Milton have agreed to settle the charges against them. Trade-LLC and the relief defendants have consented to asset freezes and being placed in receivership, and to disgorge all of the funds that the court determines they received from the fraudulent scheme. Trade-LLC has also consented to pay a civil money penalty to be determined by the court. Milton has consented to a court order permanently enjoining him from violating the antifraud provisions of the federal securities laws. The order also directs him to disgorge $2,351,963 in proceeds he received from Trade-LLC and to pay a $130,000 civil money penalty.

The Securities and Exchange Commission thanks the State of Florida — Office of Financial Regulation and the Commodity Futures Trading Commission for their assistance in this matter. The SEC's case was investigated by Susan Curtin, Karaz Zaki, and Chedly C. Dumornay of the Miami Regional Office. Christopher Martin of the Miami Regional Office will be litigating the case on behalf of the SEC.

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